Are SIP investments always more profitable than lumpsum investments?
It wouldn’t be an overstatement to state that the term “mutual fund investments” has now become synonymous with “SIP investments” in India. Inflows into systematic investment plans (SIPs) hit an all-time high of ₹21,262.22 crore in June 2024. The SIP mode of investment offers several advantages to investors (including first-time investors) and helps them consistently grow wealth in the long run. However, is it a guaranteed method of earning higher returns? Read on to know more.
The two main modes of mutual fund investments
If you wish to invest in a mutual fund scheme in India in 2024, you can choose one of two main modes of investment – lumpsum and SIP investments. The former mode of investment requires the investor to invest their entire investible corpus all at once in a mutual fund scheme. SIPs, on the other hand, are a more affordable mode of mutual fund investment that help customers invest monthly in fixed amounts. SIPs are also extremely affordable. Most mutual fund companies help customers start their SIP investment journey with a monthly contribution of ₹500. The following table captures the key differences between these two modes of investment:
| Characteristics | SIP | Lumpsum |
| Definition | You invest a specific sum of money regularly (generally on a monthly basis) in a mutual fund scheme. | You purchase all the units of the mutual fund in one go by investing your entire investible corpus in a mutual fund scheme. |
| Flexibility | SIPs are generally more flexible when compared to lumpsum investments. | Lumpsum investments offer no flexibility or room for discretion. |
| Cash flow | SIPs require regular cash flow. | You only need to invest once, at the beginning. |
| Investment horizon | SIPs are ideal for short investment horizons. | The lump sum investment mode is ideal for long-term investments. |
| Market surveillance | While investing in a mutual fund scheme via an SIP, you should keep regularly monitoring the fund’s market performance. | You need not keep an eye on your lumpsum investments as they are designed for the long term. |
When do lumpsum investments do well?
It is observed that lumpsum investments generally do well when the markets are in a bull run. For instance, if the Indian markets were in a bull run between 26th October 2008 and 26th October 2015, someone who had invested in a mutual fund via lump sum on the 25th of October 2008 would generate high returns. In such a scenario, an SIP mode of investment would increase your purchasing price because of cost averaging, thereby generating lesser returns when compared to lump sum investments.
When do SIP investments do well?
In an alternate scenario, if the market is volatile over a specific period – in this case, between the 26th of October 2008 and 26th October 2015 – SIP investments tend to outperform lumpsum investments. This is because every SIP done during the period when the market falls has a purchase price lower than that of the lumpsum investment. You must note, however, that if the market is in a bull run, the SIP mode of investment would fail to beat the lumpsum mode of investment as each SIP would be pushing up the purchasing price, thereby reducing the returns.
Are SIP investments always more profitable than lumpsum investments?
No, SIP investments are not always more profitable than lumpsum investments. As mentioned earlier, it depends on the market conditions, your investment amount, and the type of mutual fund in which you have invested.
It is not true that SIP investments guarantee high mutual fund returns. The lumpsum mode of investment, too, can generate high returns in the right market conditions. SIPs are generally more preferred by investors since they are ideal modes of investment for a volatile market. Be sure to research mutual fund schemes well and use a mutual fund calculator before investing.
